Charter Communications staffers darkly refer to it as “the coup.” But last week's exit of the cable operator's CEO, Carl Vogel, was anything but a coup. When Paul Allen says the decision was mutual, trust him, it was mutual.
Friends of Vogel say he was nearly burned out, overloaded by the combined challenges of Charter's financial and operating problems, not to mention growing friction with increasingly displeased multibillionaire Allen. While always projecting confidence that Charter could be turned around, Vogel made little effort to hide how tough the job was for him.
And Allen makes little effort to conceal how he blames Vogel for Charter's continuing slide. In an interview, he says he doesn't want to “personalize” Vogel's exit, but he points to the obvious reason: Charter's operating results have been terrible. “If you look at our results over the last period of time,” Allen says, “the board and I felt that there was headroom in the business and the need to focus on the operational side of the business.”
The co-founder of Microsoft, Allen has lost virtually all of the $7.2 billion he has put into Charter. The company's subscriber counts have dropped 5% to around 6 million since 2002. Debt stands at $18 billion. Operating cash flow is growing an anemic 3% to 5% annually.
Allen paid an average of $22 per share for his Charter shares. The stock traded last week for $1.71. “That's 171 pennies above zero,” says one Wall Street executive.
Vogel's ouster was not a complete surprise; it just came earlier than expected. Investors and reporters have been peppering him for weeks with questions about whether he would serve out his four-year contract, which expires in December. Wall Street executives generally expected him to announce his departure by summer.
In fact, Vogel's fate was sealed in October. Results from the third quarter were evident, and Vogel failed on his promise to deliver budgets. The board deferred any final decision, but by the beginning of the year, it was clear that it was time to hunt for a replacement. Recruiting would be easier if the board could search in public, rather than in secret.
To Vogel's credit, the Charter gig was much different than the one he thought he signed up for back in 2001. Of course, he recognized replacing CEO Jerry Kent would be a big challenge. Driven by his vision of a “Wired World,” Allen had amassed a portfolio of 6 million subscribers by gobbling up more than a dozen different cable operators in three years. The systems didn't form many strong, geographic clusters. Many were in small towns, not more-lucrative cities and suburbs. They needed extensive and expensive upgrades.
On the positive side, Vogel came in as the systems were posting enormous subscriber and cash-flow growth. And he inherited a respected executive team. When Kent resigned, Allen worked quickly to retain other senior players, including CFO Kent Kalkwarf and COO Dave Barford.
Turns out Charter's financial statements were deceptive—in a criminal way. Securities regulators charged that the company was overstating its subscriber counts, convincing investors that operations were healthy. Federal criminal prosecutors followed, indicting four now-former executives. That killed the company's stock price, and operations tumbled alongside. Barford and two other executives have pleaded guilty to wire fraud; Kalkwarf is scheduled to stand trial for related charges next month.
So Vogel suddenly had to cope with replacing his management team and wrestling with banks and bondholders to refinance debt. And it wasn't working. Even if he were sucker-punched, he still assured investors and the board that he would deliver on the operations.
But he failed. Under Vogel, Charter lost subscribers 10 of the past 11 quarters. DBS companies are feasting on Charter's systems. Cash-flow growth has been terrible. In recent months, Charter has lost its CFO, COO and chief technical officer. Vogel brought in consultant McKinsey & Co. for an intensive review of how to improve service and keep customers happier while doing everything a little more cheaply.
But Vogel won't be implementing that plan. Bob May, Charter board member and onetime COO of Cablevision Systems, will serve as interim CEO while the company conducts a more extensive search. Allen says May's new role was not contemplated when he joined the board in October but he will be among the people considered for the permanent job .
May and Allen say they do not plan to dramatically overhaul Charter's management.
Says May of his role, “You simply take the management team and provide direction, leadership and focus.”
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